Mexico: General rules governing Mexico’s R&D tax credit

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Ricardo Gonzalez Orta

Fernando Silis

The general rules governing Mexico's research and
development (R&D) tax credit were published in the Official
Gazette on February 28 2017. Taxpayers must comply with the
rules to qualify for the credit.

Background

The first incentive supporting R&D activities in Mexico
was granted to taxpayers in 2001, in the form of a tax credit.
This credit was repealed in 2010, and the National Council of
Science and Technology (CONACYT) assumed administration of the
incentives but instead provided cash grants for R&D
projects. As part of the 2017 tax reform, the tax credit
incentive was re-instated. It equals 30% of expenses and
investments for technological R&D carried out in Mexico and
is creditable against the income tax due for the relevant
fiscal year (FY). The credit is applicable only on the amount
of qualifying expenses and investments that exceeds the average
amount of those items in the prior three FYs.

General rules

The most important rules relating to the R&D tax credit
are as follows.

For FY 2017, taxpayers must submit their applications
between April 1 and May 31.

The credit will be calculated based on the incremental
qualifying expense and investment in the current year as
compared to the average amount of the prior three years. Thus,
no special consideration is given to taxpayers that have
consistently invested in R&D projects over the past several
FYs, whereas a taxpayer conducting R&D projects for the
first time would automatically have an incremental expense.

The following are examples of expenses that will qualify for
the tax credit:

The following are examples of expenses that do not qualify
for the credit:

Civil engineering works;

Acquisitions or leases of immovable
property;

Administrative expenses;

Manufacturing expenses;

Employee salaries;

Marketing expenses;

Studies or permits;

Financial expenses; and

Expenses financed by other government
incentive programmes.

Applications must be submitted electronically, along with
PDFs of the required documentation. For example, positive
opinion regarding tax obligations, annual tax returns and
breakdown of R&D expenses and investments for the prior
three FYs, commitments on patents and IP registration.

CONACYT will assess the R&D projects, and the
Inter-agency Committee will decide which projects should be
granted the tax credit, taking into account factors such as the
continuity of the project, patent and IP registration,
prototype development, collaboration with HEIs and PRCs,
etc.

The credit may be revoked if the taxpayer provides false
information or documentation, does not incur the relevant
expenses, or make the investment in the approved period, or has
committed tax infractions or crimes.

Good opportunity

The R&D tax credit is an interesting opportunity for
taxpayers looking to differentiate themselves from competitors
by boosting innovation. However, careful implementation is
required to comply with all the applicable rules.